Banks use global financial crisis to take advantage of cardholders

The Reserve Bank of Australia (RBA) has cut interest rates but this has done very little for consumers, writes Helen Pow, a News.com.au columnist. Credit card bills and fees have exploded and consumers are forking out hundreds of dollars to pay them off, all because banks are refusing to pass on cuts in interest rates for consumer credit.

RateCity, a financial comparison website for the Sunday Herald Sun, says that analysis shows that over the past five years banks have refused to lower their rates when the cash rate comes down.

"Interest rates on just about every other financial product - home loans, savings accounts, term deposits - have come down since November, but credit cards rates haven't budged," says RateCity chief executive Damian Smith.

In the past five years, average mortgage rates have fallen by 0.9 per cent while the RBA official rate dropped 2 per cent, A Your Money analysis of RBA data has found. Average credit card interest rates, however, have jumped more than 2 per cent for both regular and low-rate cards.

Australian Bankers' Association chief executive Steven Munchenberg tries to explain and justify the situation. He says credit card interest rates are driven by three main factors: competitive pricing, how much it costs the lender and a risk element. As a result of the global financial crisis, banks have raised the price of credit card risk.

"The cost of lending money out at the moment for the banks is expensive," Munchenberg says.
However, these lender precautions are enabling banks to gouge 25 per cent more in annual interest from card holders, which equates to $1.4 billion a year.

"Australians are paying much, much higher interest rates on credit cards than they should be," says Damian Smith.

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